Almost everything went right for Cisco Systems (CSCO 0.46%) during its fiscal fourth quarter. The networking hardware company was able to beat analyst estimates for both revenue and earnings, and its guidance was well ahead of expectations. The core switching business performed well, and smaller businesses like security and data center put up double-digit revenue growth. The company is shifting toward software and subscriptions, and those efforts are starting to show results.
The headline numbers
Cisco reported fourth-quarter revenue of $12.84 billion, up 5.9% year over year and $80 million above the average analyst estimate. Non-GAAP earnings per share came in at $0.70, ahead of analyst expectations by $0.01, and up 15% from the prior-year period.
Image source: Cisco.
Outside of "other products," all of Cisco's segments produced growth during the fourth quarter:
|
Segment |
Revenue |
Year-Over-Year Growth |
|---|---|---|
|
Infrastructure platforms |
$7.44 billion |
7% |
|
Applications |
$1.34 billion |
10% |
|
Security |
$627 million |
12% |
|
Other products |
$232 million |
(18%) |
|
Services |
$3.20 billion |
3% |
Data source: Cisco.
Switches and servers
Driving growth in the infrastructure platforms segment was the Catalyst 9000 line of switches. These latest switches from Cisco come as part of a subscription package, and the company has had success moving its customers over to this new model. The platform now has roughly 9,650 customers, up from 5,800 at the end of the third quarter. CEO Chuck Robbins said during the earnings call that the Catalyst 9000 has been "the fastest ramping product that we've ever built."
Also pushing up infrastructure platforms revenue was Cisco's data center business, which includes its UCS servers and HyperFlex multicloud platform. The data center segment produced "very strong double-digit growth," according to CFO Kelly Kramer. Offsetting some of this growth was a decline in routing sales, driven by weak sales to service providers.
Applications and security
Cisco has made quite a few software acquisitions over the past few years as part of its strategy to become a more software-centric company. That includes the oddly timed $3.7 billion acquisition of AppDynamics last year and the $2.35 billion purchase of Duo Security earlier this month.
These acquisitions have helped drive growth in Cisco's applications and security segments. The 10% growth in applications revenue was driven by growth across all the different businesses making up the segment, with strong growth from unified communications, telepresence, conferencing, and AppDynamics.
Robbins laid out the company's security strategy during the earnings call: "Security continues to be our customers' No. 1 concern, and it is a top priority for us. Our strategy is to simplify and increase security efficacy through an architectural approach with products that work together and share analytics and actionable-threat intelligence."
Robbins also touched on how the Duo Security acquisition will fit in: "Duo's [software-as-a-service] delivered solution will expand our cloud security capabilities to help enable any user on any device to securely connect to any application on any network. Combining Cisco's network, end point, and cloud security platform with Duo's zero-trust authentication and access solutions, we will be able to further enhance the industry's broadest and most effective security architecture in the market."
More growth ahead
On top of beating estimates for the fourth quarter, Cisco provided solid guidance for the first quarter of fiscal 2019. The company expects to report year-over-year revenue growth between 5% and 7%, along with non-GAAP EPS between $0.70 and $0.72. Both ranges were above what analysts were expecting.
One thing to note about Cisco's guidance: The switch to the ASC 606 revenue recognition standard will benefit revenue growth in the first quarter by approximately 1%. On a comparable basis, revenue will grow between 4% and 6%, which still beats out the average analyst estimate.
Cisco is benefiting from strong demand for its products in what Robbins called "a consistent global economic scenario." He pointed to a few things that could go wrong, including a strengthening dollar, uncertainty in emerging markets, and tariffs. But Cisco isn't currently feeling much of an impact from any of those issues.
It's hard to say whether Cisco will be able to maintain a mid-single-digit growth rate. But for now, the company is enjoying its strongest growth in years.
